Executive Summary of the Financial Statement 2019

EXECUTIVE SUMMARY OF THE FINANCIAL STATEMENT 2019

KEY FIGURES 2018 2019 Change Hot metal purchase ROGESA kt 2,377 1,955 -17.76 % AT A GLANCE Hot metal purchase SSF kt 2 0 - Total hot metal purchase kt 2,379 1,955 -17.83 % Crude steel production kt 2,782 2,281 -18.01 % Rolled steel production kt 2,446 2,023 -17.30 % of which Völklingen kt 536 405 -24.44 % of which Burbach kt 1,030 953 -7.48 % of which Neunkirchen kt 880 665 -24.44 % Shipping of steel products kt 2,431 2,130 -12.39 %

Sales revenues by region Germany € million 1,096 964 -12.05 % Rest of EU € million 558 465 -16.67 % Export € million 303 233 -23.11 % Total turnover € million 1,957 1,662 -15.08 %

Workforce (excluding trainees), as at 12/31 4,340 4,130 Personnel costs € million 318 307

Balance sheet total € million 2,282 2,189 Fixed assets € million 1,320 1,276 Investments € million 46 66

Equity € million 1,709 1,563 EBITDA € million 153 -40 EBIT € million 107 -86 Net income/loss for the year € million 73 -130

Operating cash flow € million -13 84

1 CONTENTS

Key figures at a glance 1 Annual Financial Statement Members of the Supervisory Board 3 Balance sheet for the year ending 22 Members of the Board of Directors 4 Profit and loss account 24 Management Report 5 Statement of the Group’s Shareholdings 25 The company’s fundamentals 5 Imprint 28 Financial report 5 - Overall economic and sector-related conditions 5 - Business performance of Saarstahl AG 6 - Earnings position 6 - Financial and asset position 7 - Investments 7 - Key figures 9 Changes in important non-financial performance factors 10 - Sustainability 10 - Employees 11 - Percentage of women 11 - Production 12 - Innovation and quality 12 - Raw material procurement and transport 12 - Environment and energy 13 - Most significant shareholdings 13 Risks and opportunities report 16 This abridged English-language financial statement is an excerpt from the annual Forecast report 20 report of Saarstahl AG for the 2019 financial year. This publication does not con- -- General economic conditions 20 stitute the complete form required by law (for this, please see the 2019 Annual -- Development of Saarstahl AG 20 Report of Saarstahl AG in German.)

2 MEMBERS OF THE SUPERVISORY BOARD

REINHARD STÖRMER, Völklingen ELKE HANNACK, Berlin Chairman (as of 23 May 2019) Trade Union Secretary/Deputy Chairwoman the German KATJA WEBER, Eberbach Chairman of the Curatorship for the Confederation of Trade Unions Entrepreneur, Südweststahl AG Montan-Stiftung-Saar Trust ROBERT HIRY, Rehlingen-Siersburg ERICH WILKE, Königstein (Taunus) Dr. MICHAEL H. MÜLLER, Saarbrücken (until 8 July 2019) Bank Manager, ret. Chairman, died 21 February 2019 Primary Authorized Representative of IG Metall, Völklingen Chairman of the Curatorship for the Administrative Unit Montan-Stiftung-Saar Trust DANIELA KLIEBHAN, Illingen JÖRG KÖHLINGER, Frankfurt Senior Manager of INFO-Institut Beratungs-GmbH 1st Deputy Chairman Trade Union Secretary/District Manager Prof. Dr. WOLFGANG LEESE, Lindberg of IG Metall Central Region Directorate (as of 4 April 2019) Managing Director/Partner, ARIBERT BECKER, Rehlingen WGL Verwaltung und Beratung GmbH 2nd Deputy Chairman (as of 26 September 2019) Sales Director of Saarstahl AG, ret. MARKUS MENGES, Waldbrunn Managing Director Südweststahl AG STEPHAN AHR, Wadgassen Chairman of the Group Works Council ANTJE OTTO, St. Ingbert and Chairman of the Works Council of the Völklingen Plant of Managing Director Saarstahl AG of the Association of Steelworks in Saarland, Saarbrücken

JOACHIM BRAUN, Le Ban St. Martin JÖRG PIRO, St. Wendel Member of the Board of the Montan-Stiftung-Saar Chairman of the Works Council of the Saarstahl AG Neunkirchen Plant LARS DESGRANGES, Beckingen (as of 8 July 2019) ANGELO STAGNO, Saarbrücken Primary Authorized Representative for IG Metall, Völklingen Deputy Chairman of the Group Works Council and Chairman of the Works Council of the Burbach Plant of Saarstahl AG

3 MEMBERS OF THE BOARD OF DIRECTORS

TIM HARTMANN Chairman of the Board of Directors and Chief Financial Officer

MARTIN BAUES Chief Technical Officer

DR. KLAUS JÜRGEN RICHTER Chief Sales & Marketing Officer

PETER SCHWEDA Chief Human Resources Officer and Labour Director

4 MANAGEMENT REPORT

The company’s fundamentals Financial report Weakening growth of demand in the steel market Economic conditions were challenging worldwide, with global Specialties of Saarstahl AG (Saarstahl) include the production OVERALL ECONOMIC AND SECTOR-RELATED overcapacities remaining the most pressing problem for the of wire rod, bar steel and semi-finished products in various CONDITIONS steel industry. Although demand for steel continues to rise in qualities and for a wide range of technical applications. Our 2019, the growth curve is noticeably flattening out: worldsteel most important customers include automobile manufacturers Weak growth in the world economy notes an increase in worldwide production for 2019 of 3.4 % and their suppliers, general mechanical engineering compa- Growth of the world economy slowed synchronously in to 1.869 billion tons. China is a key driver of the growth with nies, the construction industry and other steel processing in- 2019:Both the advanced economies (1.7 % in 2019 after an increase of 8.3 %, it represents around 996.3 million tons of dustries. In addition to an LD steel plant in Völklingen, a con- 2.3 % in 2018) and the emerging and developing countries produced steel, which is more than half (53.3 %) of worldwide siderable part of the production takes place in the rolling mills (3.9 % in 2019 after 4.5 % in 2018) recorded declining growth steel production. in Völklingen, Neunkirchen and Burbach. Upstream coke and rates. Global growth in 2019 reached 3 %, the lowest growth hot metal production is carried out with Aktien-Gesellschaft rate since the financial and economic crisis of 2008/2009. In addition to weakening economic conditions, the structu der Dillinger Hüttenwerke (Dillinger) through the joint subsi- In addition to the weaker economic performance in China ral circumstances continues to pose a major challenge for the diaries Zentralkokerei Saar GmbH (ZKS) and ROGESA Roheisen- (GDP growth of 6.1 % following 6.6 % in the previous year), entire European steel industry increasing protectionism and gesellschaft Saar mbH (ROGESA). the trade dispute between the USA and China, and the in- associated tariffs are making the products of European steel creasing conflicts among the oil countries of the Middle East, producers more expensive, and the EU steel market conti the long exit negotiations between the United Kingdom and nues to suffer from high imports despite introduced safeguard LEGAL PARAMETERS the EU also took their toll. The United States also recorded a measures aimed at curbing trade diversion in many products. slight decline in growth momentum to 2.4 % after 2.9 % in Eurofer estimates a - 3.1 % decrease in apparent steel con- A control agreement in accordance with Section 291 of the the previous year. sumption, and steel production in the European Union in 2019 German Stock Corporations Act (AktG) has been concluded be- accordingly fell sharply by 4.9% to around 159 million tons. In tween Saarstahl AG, as the controlled company, and its majo GDP growth in the eurozone also weakened to 1.2 % (2018: the year under review, German production declined by 6.5 % rity shareholder, SHS - Stahl-Holding-Saar GmbH & Co KGaA 1.9 %). In Germany, the weak phase for the industrial sector to around 40 million tons of crude steel from 2018. (SHS), as the controlling company. continues; weak growth of 0.5 % was mainly supported by private consumption.1 Customer segments in the manufacturing sector, which are important for Saarstahl, showed broad-based declines that were particularly noticeable in Europe. In general, willingness

1 Sources: RWI-Konjunkturbericht No. 3, IMF Forecast, OECD.

5 to invest was subdued. These effects were particularly notice- cities, so that high pressure on volumes and prices remains. key financial performance indicators include turnover and net able in Germany, where steel processors are on the cusp of a The year under review saw a sharp drop in demand due to the income for the year. Saarstahl AG recorded an EBIT of - € 86 recession. economic slowdown in the automotive sector and in mechan- million in 2019 (2018: € 107 million) and an EBITDA of - € ical engineering and the increase in the volume of imports 40 million (2018: € 153 million). Turnover changed by - 15 Worldwide automobile production, which is relevant for Saar- into the EU from third countries. Sales volume, at 2,130 kt, % (- € 295 million) compared with the previous year due to stahl, was driven by the weakened economic growth in 2019 is declining, which means that the plants are not working to lower sales volumes and average revenues for steel products. and recorded a decline in car production compared to 2018 of capacity. As a result, the company introduced short-time work Accordingly, total performance also fell by 20 % from € 2,017 about 6 % and a decline in worldwide first-time registrations schedules from 1 September 2019. million to € 1,609 million. The result for the year was thus sig- of about 4.5 %. It has therefore been experiencing a consider- nificantly below expectations. This is due to negative effects able slump since the euro crisis. In addition, in view of current The sales and price development in 2019 led to a significant from the massive pressure on revenues and margins and sig- climate targets, the automotive industry is at the beginning decline in sales and earnings figures. nificantly higher raw material procurement prices. In addition, of a far-reaching transformation process in drive technology. the first expenses amounting to € 29 million were incurred Alternative drive systems such as the electric car will increase from the program for the future announced in September their global market share, which will have an impact on steel EARNINGS POSITION 2019 as part of the ongoing strategy process. Sales revenues demand. were planned to remain at the previous year‘s level. Decline in turnover The mechanical engineering industry, an important supplier Revenues fell more sharply than expected due to the dras- Despite the higher procurement prices for ores and coke at to the automotive industry, is particularly affected by this. tic decline in demand. In the forecast for 2019, slightly lower ROGESA (for hot metal deliveries) and the increased input Looking at the global machinery industry excluding China, the sales revenues were expected. costs for scrap and alloying elements, the cost of materials fell industry is in recession, with price-adjusted turnover in 2019 Shipments decreased in the 2019 financial year from 2,431 kt by 16 % to 1,172 million (2018: € 1,392 million) as a result of down 2 % compared to the previous year. The only growth to 2,130 kt (- 12 %). Sales revenues fell from € 1,957 million the decline in production volumes. driver was the construction industry, which expects a solid to € 1,662 million (- 15 %), primarily due to a decline in the year-on-year growth rate in Germany of over 3 % in 2019 due core business of wire rod and bar. Other operating income mainly includes the release of provi- to favorable financing conditions.2 The percentage in geographical distribution of sales revenues sions, and income from currency conversion. decreased by 1 % in the other EU countries and exports. The share in Germany rose by 2 % to 58 %. At € 307 million, personnel costs were 3.3 % below the pre- BUSINESS PERFORMANCE OF SAARSTAHL AG vious year‘s level despite an increase in personnel-related pro- Earnings performance visions of € 13 million, which is attributable to an average The steel market for wire and rod products, which is relevant Given the extremely difficult conditions, the earnings situation reduction in personnel of around 110 people. Depreciation and for Saarstahl AG, continues to be characterized by overcapa deteriorated significantly compared to the previous year. The amortization remain unchanged at € 46 million (2018: € 46

2 Sources: World Steel Association, Eurofer, IHS, VDMA Maschinenbau Konjunktur International, WV Stahl / construction industry.

6 million). Other operating expenses increased by € 5 million to (2018: - € 64 million) – due for one thing to new bank loans € 187 million. This is mainly due to the formation of provi- of € 76 million and dividend payments as well as to repay- sions for risks from pending purchase transactions and for an- ment and interest payments to banks on long-term liabilities ticipated losses from sales transactions as well as from lower – cash and cash equivalents increased by € 73 million to € shipping expenses. 126 million.

The net loss for the year was € 130 million (2018: net income for the year of € 73 million). At - € 38 million, the finan- INVESTMENTS cial result was € 46 million lower than in the previous year. The primary factor was the write-down of the shareholding Saarstahl AG continued its investment program in Development of EBIT, EBITDA, ROCE in Saarschmiede GmbH Freiformschmiede to the fair value of 2019. The focus was on the LD steel plant and the roll- € 37 million. The difficult course of business in 2019 is also ing mills in Burbach and Neunkirchen. The investment reflected in the key figures of the asset and capital structure volume for Saarstahl itself amounted to € 66 million FINANCIAL AND ASSET POSITION and the development of returns. ROCE (return on capital em- (2018: € 46 million). ployed) in the year under review was - 4.5 % (2018: 5.5 %), Decrease in equity the return on sales (EBIT margin) was - 5.2 % (2018: 5.5 %). Investment spending at the two indirect subsidiaries ROGESA Due to the net loss for the year and the reduction of the bal- and ZKS totaled € 32 million (2018: € 9 million), of which ance sheet total, the equity ratio fell by 4 percentage points to Saarstahl bears half, in proportion to its share in the com- 71 % (2018: 75 %) and remained at a very high level. panies. One focus was on investments in environmental and climate protection (see the section on sustainability). Liquidity Cash inflows from operations, due to the reduction in in- Völklingen LD steel plant ventories and receivables, amounted to € 84 million The first casting of the new S1 continuous caster was success- (2018: - € 13 million). fully carried out in November 2019. With the S1, Saarstahl is further extending its technological competitive edge. The new Net cash outflows from investing activities amounted to plant, with an in-vestment volume of almost € 100 million, € 31 million due to disposals of financial assets, to in- is the first plant worldwide with mechanical soft reduction in vestments in property, plant and equipment and to div- the casting format 180 mm x 180 mm. idend payments. The cash inflows for investing activities in the previous year amounted to € 7 million. After accounting for cash flow from financing activities of€ 20 million

7 At the Supervisory Board meeting in March 2019, an investment of around € 14 million was approved for a new hot metal crane at the LD steel plant.

Burbach rolling mill In December 2018, the Supervisory Board approved the procurement of three new cranes for the preparation of semi-finished products with a total cost of around € 12 million.

Neunkirchen rolling mill Preparatory work has been completed for the measure “Inte- gration of the US plant behind straightening machine 2” in the finishing shop of rolling mill train 31, which was approved in December 2018 with a sum of around € 5 million. The plant is scheduled to begin operation in spring 2020. In March 2019, the Supervisory Board approved the investment to convert the walking beam furnaces at rolling mill trains 31 and 32 to pure natural gas operation in order to reduce specific gas consumption. A storage replacement for the gasometer will be installed and commissioned in summer 2020.

8 FINANCIAL KEY FIGURES

2015 2016 2017 2018 2019

Equity € million 1.834 1.667 1.661 1.709 1.563 Equity intensity Balance sheet total € million 2.180 2.355 2.317 2.282 2.189 in % 84.1 70.8 71.7 74.9 71.4

Equity € million 1.834 1.667 1.661 1.709 1.563 Liquidation ratio for fixed assets Fixed assets € million 1.136 1.348 1.349 1.320 1.276 in % 161.4 123.7 123.1 129.5 122.5

Long-term bank liabilities € million 114 214 234 200 241 Debt Equity € million 1.834 1.667 1.661 1.709 1.563 in % 6.2 12.8 14.1 11.7 15.4

EBIT € million 89 -143 25 107 -86 EBIT margin Product sales € million 1.635 1.499 1.830 1.957 1.662 in % 5.4 -9.6 1.3 5.5 -5.2

EBITDA € million 132 -101 69 153 -40 EBITDA margin Product sales € million 1.635 1.499 1.830 1.957 1.662 in % 8.1 -6.7 3.8 7.8 -2.4

EBIT € million 89 -143 25 107 -86 Return on capital employed Equity. tax provisions. liabilities subject to interest € million 1.942 1.924 1.906 1.955 1.919 (ROCE) (average) in % 4.6 -7.4 1.3 5.5 -4.5

Operating cash flow in accordance with German € million 111 177 -56 -13 84 Accounting Standard 21 Internal financing capability Net investment in tangible assets € million 63 58 41 45 66 in % 176.2 305.2 -136.6 -28.9 127.3

Expense structure in % Material intensity in % 68.0 72.3 72.1 69.0 72.9 of overall performance Personnel intensity in % 16.1 19.2 15.3 15.7 19.1

9 Changes in important non-financial performance factors

SUSTAINABILITY pliance with environmental and social standards in the supply GESA for € 28 million. In the energy sector, the establishment chain. of ESTA (Energy Efficiency with Steel), a federal initiative, is a The success and productivity of Saarstahl are reflected not core project for the two companies. only in economic indicators but also in the sustainability of its The material steel fulfills the principle of sustainability bet- business activities. Sustainable and responsible operation is a ter than virtually any other material. Steel is the most com- Saarstahl has been honored with a gold award for 2020 by central component of our corporate policy. monly used base material. Its use contributes significantly to the EcoVadis rating agency for its activities in corporate social environmental and climate protection and is fundamental to responsibility, after winning silver in 2018. In 2019 Saarstahl published the first joint sustainability report climate reversal. Sustainable production of renewable energy with SHS - Stahl-Holding-Saar and Dillinger. With this vol- from wind, water and the sun is not possible without steel. EcoVadis rates the following areas: untary report, the companies document their responsibility to The companies of the SHS Group recognized these megatrends A human resources policy based on continuity and high economic, environmental and societal interests. The report is early on and produce precisely the steels that are in demand social standards. based on the GRI standards of the Global Reporting Initiative for the climate reversal and mobility revolution. Internal improvement processes that bring the principles (GRI). of sustainability and safe conduct to each workplace and At the end of their useful lifetimes, products made from steel each employee. In the report, the SHS Group for the first time jointly formu- can be completely recycled as often as desired and then rein- Consolidation of competence and service for the continu- lates a commitment to sustainability and assumes responsibil- troduced into the economic cycle with virtually no waste or ous success of the customers in the economic realization ity for the generations of tomorrow: loss of quality. In addition, the production of steel in Germany of new products and systems. “We accept our responsibility to current and future genera- meets high standards in terms of environmental and climate Continued enhancement of technological competence by tions of employees and stakeholders and we want to manufac- protection. investing in new plants and modernizing existing ones ture steel products in the most state-of-the-art and sustain- and by developing innovative products and processes. able way. We are committed to the Paris Climate Agreement Saarstahl and Dillinger invest sustainably and continuously Securing of know-how through knowledge transfer and and want to do our part for low-carbon steel production.” in measures for environmental and climate protection. These strong training and professional development. include the construction of a coke gas injection plant worth Ongoing investment in research and development to en- Sustainability is an important part of the strategy process € 14 million, in which carbon as a reducing agent is partially able efficient and resource-conserving manufacture of launched in 2019. The carbon strategy and its associated replaced by hydrogen, resulting in a significant reduction in innovative products. opportunities and risks are key points of the process. These carbon emissions, and the new dust collection system for the Procurement with a focus on secure supply and environ- include significant reduction of carbon emissions and com- circular coolers at the sinter plant of the joint subsidiary RO- mentally compatible modes of transport.

10 Economically efficient and resource-saving operation Further improvements to occupational safety Overall, the percentage of women in the total workforce at through numerous environmental protection measures Occupational safety was significantly improved in the year un- Saarstahl averaged 5.7 % in 2019. When considering this for the efficient use of energy. der review, achieving the best safety result ever recorded. The proportion, industry-specific, historical and socio-cultural cir- Long-standing cooperation with universities, research in- number of accidents with days of absence was significantly cumstances must be taken into account. Saarstahl is taking stitutes and customers for the development and improve- reduced from 18 to 12 accidents with days of absence. As a re- measures at various levels to continuously increase the per- ment of materials. sult, the internal accident rate has now fallen to 2.0 accidents centage of women: for example, by continuously increasing per 1 million working hours (2018: 2.7). The target set for 2019 the percentage of female trainees, a wide range of part-time EMPLOYEES was thus achieved for the first time. The focus of safety efforts employment and the possibility of child care in the compa- was also on adapting the systems to the new DIN ISO 45001 ny‘s own daycare center. Women occupy leadership positions In September 2019, Saarstahl, Dillinger and SHS - Stahl-Hold- certification, which was confirmed by TÜV in April 2019. above all in the administrative area. As part of the assump- ing-Saar announced the joint “proactive, carbon-free, effi- tion of operational tasks by the majority-holding company cient” program for the future . The aim of the program is to Fostering young talent SHS - Stahl-Holding-Saar, such as in the area of central staff develop in Saarland the most state-of-the-art steel industry. Saarstahl continues to invest in its own programs to foster functions, a considerable percentage of female employees The planned concept for the strategy process also includes young employees. In the year under review, 76 (2018: 82) new and managers are represented in the holding company. Con- personnel measures such as the reduction of 1,500 jobs and trainees were recruited, bringing the total number across all sequently, the percentage of female employees in the total the outsourcing of 1,000 jobs. These are to be implemented in training years to 270 (2018: 272). In addition, there were 55 workforce, at 45.0 %, is significantly higher than at Saarstahl. a socially responsible manner without compulsory redundan- school interns, 23 interns from technical secondary schools cies by means of partial retirement, flexible work schedules, and 10 working students throughout the year. The instrument Within the framework of Section 111 (5) of the German Stock transfers within Group companies in Saarland and a volunteer of employing working students in particular ensures the strate- Corporations Act (AktG), the target quota of 30 % for the per- pro-gram. These measures are currently being coordinated. For gic fostering of young talent in the field of academics. centage of women on the Supervisory Board committees was the first time in Germany, a transfer company was created for set for all companies in Saarland’s steel industry (SHS - Stahl- employees with temporary employment contracts. The first ef- PERCENTAGE OF WOMEN Holding-Saar, Dillinger and Saarstahl). The Supervisory Board fects of these measures already began making themselves felt of Saarstahl will deal with the issue in the case of new ap- at the end of 2019. For example, at the end of the year under Within the framework of the law passed on 24 April 2015 re- pointments at the Board of Directors level in accordance with review, 4,130 people were employed (2018: 4,340). garding equal participation by women and men in manage- German law regarding the equal participation of women and ment positions in the private and public sector, corresponding men in executive positions (FührposGleichberG). The introduction of short-time work schedules starting 1 Sep- quotas for the development of the percentage of women were tember 2019, due to a drastic decline in demand, required set by the Supervisory Board - for the Supervisory Board and Within the framework of Section 76 (4) of the German Stock flexibility on the part of employees in the organization of their the Board of Directors - and by the Board of Directors for the Corporation Act (AktG), the Saarstahl Board of Directors has working hours and shifts. first and second management levels. set a target quota of 12 % for the percentage of women in

11 management functions. The analysis relates to senior execu- In 2019, the Nauweiler rolling mill produced 462,837 tons, duction was used to optimize the microstructure in the cast tives and includes the first and second levels of the hierarchy of which 434,457 tons were bar steel and 28,380 tons were state so that expensive homogenization annealing is no longer as well as the functions that are equivalent to the two top primary rolled products. The average shift performance was required for further processing. levels of management in terms of their importance for the 775 tons/shift, the aver-age output was 94.01 % . company. In the forge, a large forging made of MARBN steel for applica- In 2019, the Neunkirchen plant produced approx. 685,000 tion temperatures up to 650°C was produced for the first time tons of rolled products on the two rolling mill trains 31 and in a cooperative project. PRODUCTION 32. A new shift output record was achieved in March on rolling mill train 31 with an aver-age of 772 tons. A new daily Raw material procurement and transport As the core facilities, the production division of Saarstahl AG record was also achieved in April on rolling mill train 32 with Iron ore prices developed unevenly in 2019. A dam burst at the includes the LD steel plant in Völklingen as well as four rolling a hot-rolled production of 2,678 tons. The production volumes world’s largest iron ore producer, Vale in Brazil, initially led to mills located at the Völklingen (Nauweiler), Burbach and Ne- were 358,658 tons on rolling mill train 31 and 326,126 tons on a shortage and to significantly rising prices, especially for fine unkirchen sites. The pre-liminary stages of production, i.e. the rolling mill train 32; the average output was 95.7 % on rolling ores. In the course of the economic slowdown that began in production of coke and hot metal, take place at the Dillingen mill train 31 and 95.3 % on rolling mill train 32. the middle of the year, iron ore prices fell back to a level be- plant with the two companies Zentralkokerei Saar GmbH (ZKS) low 100 US dollars per ton. With an import volume of around and ROGESA Roheisengesellschaft Saar mbH (ROGESA) (Saar- INNOVATION AND QUALITY 1 billion tons, China remained by far the most important sales stahl share 50 % each). Saarstahl introduced short-time work market for seaborne iron ore, far ahead of the Western indus- starting 1 September 2019 due to a drastic drop in demand In the area of materials development, a new steel for fork arms trial nations.3 and correspondingly low utilization of plant capacity. was developed in collaboration with a customer. In addition to improved mechanical properties, savings in heat treatment Due to good demand in Asia, coal prices remained at a high ROLLING MILLS were also achieved. level for a long time and did not drop significantly until the In 2019, the four rolling mills produced a total of second half of the year. approx. 2,109 kilotons of rolled products. The distribution in Homologation for the supply of valve spring wire to a well- detail was as follows: The Burbach rolling mill produced a total known German automobile manufacturer was successfully The completion of a coke oven pilot plant at ZKS will enhance of 961,104 tons of rolled products in the year under review. completed in the year under review. procurement flexibility. The resulting shorter response times The average production per shift was 1,592 tons; the average Metallurgical soft reduction was used to improve the core give us more options for geographical diversification. The al- output was 98.08 %. Both key performance indicators repre- density of free cutting steel in square 240 mm format. This ready high price volatility is further exacerbated by a growing sent the highest annual averages since data recording began. enabled a significant reduction of the US failure rate for number of long-running trade conflicts, combined with the square and flat dimensions made from this primary material. resulting concrete government measures such as import tariffs For rolling bearing steels in the same casting format, soft re- and import quotas for certain product groups.

3 Source: S&P Global Platts.

12 Volatility in freight rates also remained a challenge. Prices rose ENVIRONMENT AND ENERGY Carbon emissions trading significantly in the second half of the year. The combination As part of the ongoing process of annual emissions report- of cargo rates that are secured medium to long-term and the Saarstahl gives high priority to environmental and climate ing to the German Emissions Trading Authority (DEHSt), the simultaneous use of opportunities on the spot market has con- protection and continuously invests in measures that serve monitoring plans for plants subject to emissions trading were tinued to prove fruitful for ROGESA and ZKS. these goals. updated in 2019.

The issue of “sustainability in procurement” is becoming in- Environmental management creasingly important. The SHS Group has adopted a code of During the year under review, Saarstahl AG with its three lo- MOST SIGNIFICANT SHAREHOLDINGS conduct concerning this matter and has involved all suppliers cations were successfully certified in accordance with the re- accordingly. This created the basis for a supplier evaluation vised ISO 14001:2015, as were Kalksteingrube Auersmacher Zentralkokerei Saar GmbH with regard to CSR topics as part of supplier management. GmbH, Saarschmiede GmbH Freiformschmiede, Schweißdraht Saarstahl and Aktien-Gesellschaft der Dillinger Hüttenwerke ROGESA and ZKS are maintaining their continuous efforts to Luisenthal GmbH and Saar-Bandstahl GmbH. each hold an indirect 50 % interest in Zentralkokerei Saar optimize the quality and cost of the supply for the blast fur- GmbH. ZKS produces coke intended exclusively for use in naces and the coking plant. Climate and environmental protection ROGESA’s blast furnaces. Total coke production in 2019, at Saarstahl invests sustainably in measures for climate and envi- 1,281 kilotons, was slightly below the previous year’s produc- Reduced shipping volume ronmental protection. Approximately 10 million was invested tion level (1,302 kilotons). ZKS is a company without employ- A total of 2.12 million tons were shipped in the 2019 financial in environmental protection measures during the year under ees. Personnel required for operation of the coking plant are year, a reduced quantity compared with 2018. The reduction is review in the construction of the new S1 continuous caster, of provided by Dillinger. Investments at ZKS in 2019 amounted to due to lower demand from customers. which around € 5 million was spent on noise protection for a € 14 million (2018: € 4 million). As in previous years, the bulk of the shipment volume was sent floating-type cooling bed that enables billets to be set down by rail. Trucks are used as a means of transport only where in a targeted way and thus avoids the noise emissions typical ROGESA Roheisengesellschaft Saar mbH necessary due to a lack of transport connections or where the of a conventional cooling bed. ROGESA Roheisengesellschaft Saar mbH, in which Saarstahl volumes are too small. Provisioning of the required freight cars AG holds a 50 % interest (indirect and direct), produces hot has also eased considerably because of the lower demand for Saarstahl has been working in the ESTA network, an initia- metal exclusively for its shareholders, Saarstahl and Dillinger. transportation due to the slowdown in economic growth in tive of the German government, since its founding in 2017. Management of ROGESA, as a company without employees, is Germany. The goal of ESTA is to reduce carbon emissions by more than handled by Dillinger. 30,000 tons within three years. Dillinger, Saarstahl and the subsidiaries Saarschmiede, ROGESA and ZKS are also involved Due to a poor order situation for both shareholders in the in the energy efficiency network. fourth quarter of 2019, hot metal production in 2019 by blast furnaces 4 and 5, at 3,867 kilotons, was 11.9 % below the pre-

13 vious year‘s output (4,389 kilotons). In the year under review, some countries led to a further reduction in price levels. In generation machinery sector. In addition, major projects for 1,911 kilotons were delivered to Dillinger (2018: 2,012 kilo- contrast, positive demand trends were seen in the course of 2020 have been secured in the field of special nickel-base al- tons) and 1,956 kilotons to Saarstahl (2018: 2,377 kilotons). 2019 in the power generation machinery sector and for prod- loy materials, which will lead to an improvement in the aver- Investments at ROGESA in 2019 amounted to € 18 million ucts and input materials made of special materials. In pow- age margin level. Nevertheless, high market and competitive (2018: € 5 million). Along with STEAG New Energies GmbH er generation machinery manufacturing, this led to a slight pressure continues in the other market segments and prices (49.9 %) and VSE AG (25.2 %), ROGESA holds a 24.9 % stake improvement in the low price level while at the same time remain at a consistently problematic level. For this reason, the in Gichtgaskraftwerk Dillingen GmbH & Co. KG, which leases a reducing overcapacities for large forged products. strategic realignment will continue to be the focus of atten- 90 MW power plant at the Dillingen plant to the operators of tion in 2020. Saarschmiede is all in all expecting a significant the blast furnace gas power plant, Dillinger, ROGESA and ZKS, Saarschmiede business performance increase in sales revenue in the coming financial year. for the generation of electricity. Following the restructuring carried out at the end of 2017, the realignment of Saarschmiede continued to be rigorously Aktien-Gesellschaft der Dillinger Hüttenwerke Saarschmiede GmbH Freiformschmiede pursued in 2019. In addition to the expansion of new business Aktien-Gesellschaft der Dillinger Hüttenwerke (Dillinger), in Saarschmiede GmbH Freiformschmiede (Saarschmiede) spe- segments, this involved securing market shares in the power which Saarstahl holds a 33.75% stake, is the most important cializes in the manufacture of high-quality open-die forged generation machinery sector and implementing various inter- subsidiary of DHS - Dillinger Hütte Saarstahl AG. components with a focus on power generation machinery, nal improvement projects. In the export markets of the United Dillinger specializes in the production of high-quality heavy general mechanical engineering, tool steel, and primary ma- States, China and Japan, Saarschmiede was successful in 2019 plate and, together with its subsidiary Dillinger France S.A. in terials as well as special alloys. Its most important customers despite increasing trade disputes and was able to further ex- Dunkerque, France, is the world leader in this market segment. include manufacturers of power plants who purchase forged pand business with existing and new customers. parts for use in turbines and generators. In addition, compo- Order intake was restrained in the first half of the year but The European heavy plate market remained fiercely competi- nents for heavy-duty machines and special alloys made from already above the previous year‘s level and increased to a sat- tive in 2019: in addition to persistently weak demand for pipe nickel-based alloys are produced for corresponding applica- isfactory level as the year progressed. Sales decreased to 94 plate, the market is being impacted by the decline in demand tions. million (2018: € 110 million) due to a weak incoming order from almost all other customer segments. Imports into the EU level in the previous year and the result was approximately - from third countries have fallen compared to the previous year General market situation € 20 million (2018: - € 10 million). The number of employees but remain very high, accounting for around 20 % of market The market situation continues to be strained in the segments grew in the year under review from 431 to 449. supply. The capacity utilization situation of European produc- in which Saarschmiede is active. As in previous years, the en- ers has therefore deteriorated further compared to 2018, re- tire forged parts market suffered from extreme competitive Outlook sulting in what is probably the lowest level since the crisis year pressure. In individual market segments such as tool steel and The starting position for Saarschmiede in 2020 is more pos- 2009. In addition, the slab surplus resulting from the weaker heavy mechanical engineering, the additional decline in de- itive due to a significantly higher order backlog. The latter is strip market is increasing the pressure on prices. By increasing mand in the automotive industry and higher import tariffs in benefiting from the currently good demand trend in the power deliveries to non-EU countries by around 5 %, European pro-

14 ducers are successfully regaining at least a small portion of training of qualified employees so that Dillinger can continue the export market shares lost in recent years. 4 to expand its leading role in the manufacture of heavy plate. Further investments were made in the rolling mill, further pro- Under these circumstances, Dillinger‘s cautious outlook for cessing, central workshops and final inspection areas. 2019 has been confirmed: the negative trend in production In addition, Dillinger and Saarstahl are investing large sums and shipment volumes also continued in 2019. Dillinger closed in environmental protection measures and the reduction of the business year with a clearly negative operating result. carbon emissions from their plants (see also the section on sustainability). Purchases of hot metal, at 1,911 kilotons (2018: 2,012 kilotons), fell by 5 %, and crude steel production fell by 4.1 % At the end of the reporting year, 4,871 people were employed compared with the previous year to 2,238 kilotons at the Dillingen site (31 December 2018: 4,919). They worked (2018: 2,334 kilotons). at Dillinger itself as well as – in the context of plant man- Production at both rolling mills together (1,847 kilotons) agement – at ZKS and ROGESA. In 2019, 83 young people fell by a total of 3.3 % compared with the previous year (2018: 75) started their careers in the company. (2018: 1,910 kilotons), with 1,291 kilotons of heavy plate (2018: 1,248 kilotons) being pro-duced in Dillingen and 556 kilotons (2018: 662 kilotons) in Dunkerque.

Sales revenue sank by 1.4 % from € 2,019 million in the previous year to € 1,990 million. Earnings be-fore interest and taxes (EBIT) amounted to - € 91 million (2018: - € 6 million) and earnings before interest, taxes, depreciation and amortization (EBITDA) was - € 20 million (2018: € 66 million). Re- turn on capital employed (ROCE) during the year under review amounted to - 0.3 % (2018: - 0.2 %).

Investments in 2019 amounted to € 27 million (2018: € 36 million). Investments in the 2019 reporting year also includ- ed preparation of the construction site for the construction of a new training workshop. The company is investing in the

4 Sources: World Steel Association, Eurofer, IHS database, VDMA Maschinenbau Konjunktur International, WV Stahl/construction industry.

15 Risks and opportunities report Risk communication: The Board of Directors is informed consumer segments, such as the automotive industry and about the current risk situation at regular intervals as well mechanical engineering, have also added to the structur- Saarstahl already introduced its company-wide risk manage- with regard to specific events. Moreover, key risk man- al problems. The market environment is defined by growing ment system years ago. The methods and tools of risk manage- agement issues are discussed with the Supervisory Board. worldwide protectionism accompanied by tariffs, as well as ment are continuously developed further. by high imports into the EU resulting in overcapacities that A worldwide network of risk coordinators has been established continuously depress selling prices. Please refer to the section Organization of risk management to carry out the operational risk management process. In ad- on human resource risks for information on the associated Risk management at Saarstahl consists in part of the risk co- dition to this, adhoc risk reporting was already introduced in employment risks and measures. ordinators and officers in the departments and subsidiaries on 2016. It makes it possible to generate a current overview of the one hand. On the other, the corporate risk management of the risk situation at all times. Due to the customer structure of companies with global op- SHS handles coordination, support and consolidation duties As part of the integrated governance, risk and compliance ap- erations – especially in the automotive and mechanical en- for Saarstahl. proach, the risk coordinators collect additional information for gineering industries – Saarstahl is highly dependent on the early identification of compliance risks (preventive risk anal- worldwide development of the automotive market. If the pu- Methods and structure of risk management ysis). Deriving measures is part of the compliance program. nitive tariffs on automobile imports threatened on several oc- The risk management system of Saarstahl includes all meas- Corporate Auditing, as part of the comprehensive corporate casions by the United States were actually levied, this would ures aimed at ensuring systematic handling of risk and is fo- management approach to establish an internal management especially burden the German automotive industry and would cused on risk transparency, risk controllability and risk com- and monitoring system, is a component of risk management thus have a considerable additional impact on Saarstahl‘s munication. as defined by the German Corporate Sector Supervision and business. In addition, the automotive industry is on the cusp Risk transparency: Risk management aims to identify and Transparency Act (KonTraG). In this capacity, it is also respon- of a transformation process in drive technology. In light of highlight significant risks connected to business activities sible for the systematic and effective internal auditing of the climate targets, the electric car will increase its market share at the earliest possible stage. A systematic and consistent risk management system. globally. Saarstahl is countering this with a diversification and method of analysis and evaluation is used for this pur- further development of the product and customer portfolio. pose. Sector, External and market risks Risk manageability: We define this as avoiding, minimiz- The trade conflict between the United States and China con- Because Saarstahl produces steel using the carbon-intensive ing or transferring identified risks through already exist- tinued to have a negative impact on almost the entire global blast furnace route, high charges must be expected due to ing or to be nearly implemented risk control instruments. economy in 2019. The spiral of tariffs and counter-tariffs, as the pricing of carbon emissions, if the support promised by Transfer of risk is handled through the corporate service well as the disregard to some extent of applicable WTO regula- politicians is not made available. Customers are also expecting provider SHS Versicherungskontor GmbH, which is re- tions, have led to uncertainty among market participants and low-carbon steel production, which is required for sustaina- sponsible for arranging adequate insurance coverage. have damaged global trade and economic relations. ble procurement. As part of the strategy process, alternative The current economic downturns and upheavals in core courses of action are being developed to convert the produc-

16 tion process to lower carbon emissions. However, implementa- of the manufacturing processes and technical operating fa- sidiaries are incorporated in the short- and medium-term fi- tion depends heavily on the policy framework. cilities, to human error, or to force majeure. In the year under nancial plans according to uniform standards. During regularly review, there was a major disruption of operations at one of occurring analysis, both the current status and planning are In sum, the impact of these externally driven risks must be ROGESA‘s blast furnaces. The repairs were carried out quick- incorporated into the risk management system. This ensures considered highly significant. ly and in a coordinated manner. A systematic analysis of the the necessary financial flexibility for Saarstahl. causes followed the incident and the necessary sustainable Procurement risks measures were derived to avoid the same cases of damage in Independent of this, market risks can influence fluctuations of The raw materials for the bulk goods required for hot metal the future. current market values or future cash flows from financial in- production are procured worldwide. The many current geo- struments. Saarstahl actively counters these risks through the political crises can therefore have a negative impact on the Financial risks use of currency and interest rate hedging transactions. These procurement situation. To minimize risk, an ongoing diversifi- It is of central importance for Saarstahl to ensure the financial instruments considerably limit or completely eliminate market cation process with respect to sources and properties has been independence of the company by coordinating its financial re- price risks. implemented in the procurement of raw materials. Long-term quirements. To do so, the financial risks are actively controlled supply contracts are also concluded to secure supplies. and limited. This is supported by integrating the financial de- In general, hedging instruments are not employed separately In order to minimize price risks caused by volatile markets, partments under the umbrella of SHS. The introduction of a from the underlying performance-related hedged item. They contractual hedging of quantities and prices is used with the new treasury system will simplify control and map processes are regularly monitored and analysis is generated for control respective supplier or dealer (natural hedge) or with deriva- more efficiently. purposes. The results are incorporated into the risk manage- tives, depending on the market situation. In addition to the ment system. Any residual risk is considered low. The financial measures previously mentioned, alternative possibilities for The company concludes financial instruments only with coun- reporting of the hedging instruments mentioned is presented making the use of raw materials more flexible are constantly terparts that have an excellent credit rating. Receivables in in detail in the notes to the balance sheet. being tested and evaluated. the area of deliveries and services are continuously monitored. Overall, security of the supply of raw materials, energy and Transactions are secured by means of credit insurance. The re- Legal risks and compliance risks logistical capacities in the required quantities and quality can sulting risk of default can therefore be considered low. Legal risks are to be assessed as moderate. The company is cur- be considered ensured over the medium term. rently involved in various proceedings, the outcome of which Ongoing financial and liquidity plans and a far-reaching cash are open. A major case was concluded in 2018. It is likely that management concept ensure the company‘s liquidity at all various proceedings will follow this. In another proceeding, a Risks from operating activities times. A steel producer’s financing of capital-intensive invest- leading decision by the Federal Supreme Court has resulted Stoppages, property damage and/or quality risks may occur in ments in fixed assets is always made at matching maturities, in a general worsening of the legal position. Saarstahl and a the production facilities of Saarstahl. These may be due to the taking into account the expected capital returns and the nec- subsidiary are affected here. A general risk exists for Saarstahl complexity of the manufactured products, to the complexity essary backing with equity capital. In addition, all major sub- that, due to the increasing internationalization and expansion

17 of business activities, Saarstahl AG could face legal uncertain- gas reduction targets means making extensive adjustments to technologies and adapted IT operating processes are used to ties as a consequence of contact with numerous fields of law proven production processes. The investments required for this identify and defend against threats, including new ones, at an and legal systems. For very specific issues that reach beyond cannot be implemented by the companies without a fair com- early stage. Emergency plans and exercises are part of the IT German and French jurisdictions, Saarstahl also procures the petitive framework and significant funding and support. security concept. Close cooperation between the departments expertise of external legal practitioners. This is also true for and the data protection officer ensures that processing of per- issues that carry a high risk of uncertainty. The Emissions Trading Directive for the 4th trading period from sonal data is carried out only in accordance with the provi- 2021-2030 is now in force. The introduction of the market sions of German laws on data protection. The compliance program of the SHS Group and thus of Saar- stability reserve has resulted in substantial quantities of al- stahl was continued with greater intensity during the past fis- lowances being with-drawn from the market since 2019. For Human resource risks cal year by the Compliance Committee. The focus continues Saarstahl, this means that a considerable additional financial For Saarstahl as a manufacturer of products with high tech- to be on the important areas of antitrust and competition law burden due to emission allowances that must be acquired is nological standards and quality, qualified specialists and ex- as well as corruption. Informational events and publications already being noted at present and is also to be expected in ecutives and their strong commitment to the success of the are used preventively to encourage conduct that is compliant the 4th trading period. Due to its high importance, the issue company are of primary importance. In view of this, Saarstahl and that exhibits integrity. Use of an eLearning tool has now is being handled by a separate carbon strategy team at the places great importance on being an attractive employer. made it possible to access the training content worldwide and SHS level. in various languages. An additional data protection officer There is a general risk of losing skilled employees, and with (eDSB) was appointed in the 2019 financial year for continued IT risks them, expertise. The company counters this risk by providing practical implementation of the General Data Protection Reg- The availability of data and information flows is of central training in various vocational fields. To come into contact ulation that came into force in May 2018 and to support the importance for Saarstahl. Specific information technology with suitable people, Saarstahl AG engages in a wide range activities of the Group Data Protection Officer. segments are consolidated under the umbrella of SHS Infra- of recruiting efforts. The company also promotes collaboration struktur. In addition to failures of important systems for pro- across multiple generations of employees to ensure systematic Regulatory risks duction and administration within the value chain, risks due knowledge transfer to those who will succeed retiring experts Saarstahl is committed to targeted climate protection meas- to systems being accessed by unauthorized third parties, such and managers. These efforts are supported by specially trained ures and actively supports climate reversal, such as through as in the case of industrial espionage or sabotage, should be coaches who help to systematically record the knowledge crit- technological approaches to reducing carbon emissions. noted. The software used is therefore continuously monitored ical to success and transfer it by means of a transfer plan to However, regulatory developments regarding climate protec- and updated by Saarstahl and SHS Infrastruktur. the successors of employees leaving the company. tion also entail risks for Saarstahl. The European Commission‘s The existing information security management system is con- long-term strategy for a climate-neutral economy carries tinuously being expanded. In addition, an information secu- Employment risks caused by the situation on the world market enormous risks for energy-intensive industries. For the steel in- rity officer was appointed back in 2017. Along with various are countered by labor market policy instruments (such as the dustry, consistent implementation of the current green-house internal and external efforts to achieve IT security, modern short-time work scheme introduced in all areas of Saarstahl in

18 September 2019), as well as by internal flexibility instruments. Organization of opportunity management fers opportunities for Saarstahl. Regardless of the type of drive The current situation in the steel industry reduces the compa- Opportunity management at Saarstahl involves the systematic system, the cur-rent products of Saarstahl AG will continue to ny’s attractiveness as an employer. Similarly, a massive reduc- handling of opportunities and potentials. It is directly embed- be in demand in a number of segments. In addition, products tion in jobs leads to know-how risks, which are countered as ded into the work carried out by the Board of Directors of that meet the new technological requirements will also be re- described above. Saarstahl. The strategy process initiated in 2019 is making an quired in the future to success-fully participate in the market. important contribution. Further details are provided in the fol- Saarstahl is taking the necessary measures to be able to par- Environmental risks lowing section. ticipate in this development in worldwide automotive markets. The production processes in hot metal and steel production as well as in further processing involve innate process-related Strategic opportunities Operational opportunities environmental risks including contamination of air and water. In autumn 2019, Saarstahl and Dillinger launched a joint fu- Targeted investments in production facilities offer the oppor- Saarstahl AG therefore makes every effort to exclude damage ture program to safeguard and realign the company under the tunity to further differentiate the company from its compe- that could result from the product or its manufacture with umbrella of SHS - Stahl-Holding-Saar. Over the next three tition and to secure and improve profitability through cost intensive quality and environmental management. For exam- years, a program consisting of various key points and objec- reductions. ple, Saarstahl operates an integrated management system tives aims to make the participating companies future-proof. that combines quality management, industrial safety, envi- The initial aim is to increase profitability to such an extent The first casting was successfully carried out on the new S1 ronmental protection and incident management. In addition, that the necessary investments in the future can be made. continuous caster in Saarstahl‘s steel plant in November 2019. the company is monitored by authorities (at regular intervals The subsequent hot commissioning with further castings was and in close consultation). Saarstahl AG continuously invests Options for future carbon-free steel production routes and for also successful. This format marks the beginning of a new era in measures that increase the effectiveness of environmen- new technologies are being developed within a separate car- for Saarstahl in the highest quality segment. tal protection and fulfill environmental requirements. Beyond bon strategy. Saarland’s steel industry is realigning. This will take place in a this, however, there are still risks due to the tightening of en- completely integrated process of Dillinger and Saarstahl. The vironmental constraints with requirements that may not be Extensive job-related measures are to be implemented by joint strategic program for the future will also lead to Dillinger economically feasible with current technology. Furthermore, changing processes and structures, increasing our productivi- and Saarstahl working even more closely together. risks from contamination due to previous business activities ty, eliminating duplicate structures and closing or outsourcing may arise on properties owned by Saarstahl AG that are no areas. Saarstahl has at the same time started a comprehensive Overall assessment of the risk situation longer or are only partially in use. Saarstahl AG counters these sales initiative. Individual measures include expanding the The World Health Organization (WHO) declared COVID-19 a risks through continuous monitoring and systematic remedi- product portfolio, additional service concepts and the contin- pandemic on 11 March 2020. The effects on the financial and ation efforts. ued push to internationalize. economic markets associated with the spread of the coronavi- The upheaval emerging in the automotive market due to the rus will also influence Saarstahl’s business activities in 2020. trend toward more environmentally friendly mobility also of- It is however not yet possible to reliably quantify the potential

19 negative consequences for the net assets, financial position, Forecast report duction growth is expected: worldwide machine sales, exclud- and earnings position, such as declines in demand and sales, ing China, are expected to fall by 1%. The only exception re- employee absences and production risks. Overall, there are no GENERAL ECONOMIC CONDITIONS mains the construction industry in Europe, which for the third discernible risks that could endanger the company‘s continued year in a row expects robust growth of 1.2 % in 2020 due existence. Uncertainties slowing growth to a favorable order situation, although a slight slowdown is Global economic output is expected to weaken in 2020. A sim- expected. ilar trend is expected for the eurozone. 5 There is a high degree of uncertainty among customers and Steel market stable at a low level end consumers with regard to changes in drive technologies The global economic outlook remains bleak in 2020 and the and alternative mobility concepts, which may have led to growth forecast of 1.7% for global demand for steel is corre- investment decisions being postponed in 2019. It can be as- 6 spondingly low. Worldsteel forecasts low growth for Chinese sumed that the uncertainty will continue in 2020. steel demand at 1.0%, while demand in the rest of the world – driven by emergings and developing countries – is expect- Development of Saarstahl AG ed to grow by 2.5%. Production in steel-consuming sectors The steel market for wire and rod products continues to be in the EU is expected to stabilize at a low level. Continuing defined by overcapacities due to the sharp percentage in- import pressure coupled with general uncertainty, including crease in the volume of imports from third countries into the the unpredictable future frame-work conditions for emission EU. Added to this are trade policy uncertainties including the reduction policy, continues to pose a serious challenge to EU threat of automobile tariffs, which could place a considerable steel producers. additional burden on the main automotive customer sector and will therefore be a decisive factor for up-coming business This will also be reflected in the steel market for wire and performance in 2020. In view of these circumstances, Saar- rod products, which is still in crisis mode. The main custom- stahl AG is facing a difficult financial year. er industries in Europe – especially in Germany – will face a difficult financial year in 2020. The automotive industry in The company started the year with weak demand and contin- the EU is not expected to increase production in 2020 due to ued the short-time work schedules introduced in September presumed low exports – caused by high market saturation in in the first months of 2020. The external market conditions many industrialized countries – and to trade risks. The me- described above – overcapacities, import pressure, economic chanical engineering industry is still in a cyclical downturn. downturn and pressure on revenues – will make it difficult to Incoming orders remain under pressure, which is why no pro- achieve sufficient capacity utilization in 2020 and simulta-

5 Source: OECD. 6 Sources: German Steel Federation (WV Stahl), IHS database, worldsteel, Eurofer 20 neously implement significant price increases. Added to this Due to these general conditions, Saarstahl is expecting busi- is the continuing rapid worldwide spread of the coronavirus. ness performance to face serious challenges in 2020. It is an- The associated effects on the world economy will also have a ticipated that the first positive effects of the strategy process noticeable influence on the business development of Saarstahl will begin to be felt in 2020 but will only become fully effec- in 2020. However, the possible consequences for Saarstahl, tive in the medium term. Saarstahl is expecting a decline in such as declines in demand and sales, employee absences and incoming orders for 2020, which will lead to production and production risks, cannot be quantified at present. sales volumes below those of the previous year. Depending on the duration of production interruptions in the main customer Within the group, this topic is coordinated by an interdiscipli- sector – the automotive industry – and the extent of an im- nary crisis management team. This team is formed from the pending recession, the changes compared with the previous full Board of Directors and key functions and is supported by a year may be more far-reaching and lead to a further reduction working group for pandemic planning that is primarily respon- in the operating result (EBIT) and EBITDA. sible for personnel issues, health and safety. The aim is to limit the risks and the impact on the company and its employees. Völklingen, 27 March 2020

HARTMANN BAUES

Dr. Richter SCHWEDA

21 Assets BALANCE SHEET FOR THE € thousand Notes 31/12/2019 31/12/2018 YEAR ENDING A. Fixed assets I. Intangible assets (1) 642 769 II. Tangible assets (2) 483,807 463,474 III. Financial assets (3) 791,106 855,991 1,275,555 1,320,234

B. Current assets I. Inventories 1. Raw, auxiliary and operating materials 64,919 71,170 2. Unfinished products and finished goods 296,901 350,236 361,820 421,406

II. Accounts receivable and other assets 1. Trade accounts receivable 173,849 306,580 2. Accounts receivable from affiliated companies (4) 138,606 112,387 3. Accounts receivable from companies where a 1,163 12 participatory interest exists 4. Other assets 108,506 68,435 422,124 487,414

III. Cash balance and credit with financial institutions 126,025 52,810 909,969 961,630

C. Accruals and deferrals 504 52

D. Debit differences in assets in the calculation of assets (5) 3,249 —

2,189,277 2,281,916

22 Liabilities € thousand Notes 31/12/2019 31/12/2018

A. Equity (6) I. Subscribed capital 200,000 200,000 II. Capital reserve 41,313 41,313 III. Other retained profit 917,730 917,730 IV. Balance sheet profit 403,945 550,071 1,562,988 1,709,114

B. Reserves 1. Reserves for taxes (7) 39,711 42,539 2. Other reserves (8) 199,985 170,641 239,696 213,180

C. Liabilities 1. Liabilities to banks (9) 241,453 200,464 2. Advanced payments received on account of orders 472 268 3. Trade liabilities (10) 46,025 64,654 4. Liabilities toward affiliated companies (11) 32,926 21,076 5. Liabilities towards companies where a (12) 46,721 53,030 participatory interest exists 6. Other liabilities (13) 18,288 19,648 385,885 359,140

D. Accruals and deferrals 708 482

2,189,277 2,281,916

23 Profit and loss account € thousand Notes FY 2019 FY 2018

1. Sales revenues (14) 1,661,579 1,956,763 2. Changes in inventory and internally produced (15) -52,273 59,841 and activated assets 3. Other operating income (16) 17,454 22,499 1,626,760 2,039,103

4. Material costs (17) 1,172,442 1,392,365 5. Personnel costs (18) 307,110 317,551 6. Depreciation and amortization of intangible (19) 46,054 45,964 and tangible fixed assets 7. Other operating expenses (20) 187,075 181,785 -85,921 101,438

8. Income from participations (21) -36,747 7,463 9. Interest income (22) -857 743 10. Taxes on income and earnings (23) 2,859 34,716

11. Result after tax -126,384 74,928

12. Other taxes (24) 3,168 1,942

13. Net loss /net income for the year -129,552 72,986

14. Profit brought forward from the previous year 533,497 477,085

15. Balance sheet profit 403,945 550,071

24 STATEMENT OF THE GROUP’S SHAREHOLDINGS

AUFSTELLUNG DES ANTEILBESITZES Capital Equity Result for the share % 31 December 2019 FY 2019 thousand € thousand €

1. Affiliated companies a) In Germany

Saar-Blankstahl GmbH, Homburg 100.000 42,022 0 1) Saar-Bandstahl GmbH, Völklingen 100.000 10,897 0 1)3) Saarstahl-Export GmbH, Völklingen 100.000 1,585 0 1) Metallurgische Gesellschaft Saar GmbH, Völklingen 100.000 5,123 0 1) Saarstahl-Vermögensverwaltung GmbH, Völklingen 100.000 8,932 266 Saarschmiede GmbH Freiformschmiede, Völklingen 100.000 60,331 -20,014 Saarstahl Finanzanlagen GmbH, Völklingen 100.000 23,513 -3 Drahtwerk St. Ingbert GmbH, St. Ingbert 100.000 22,684 -306 Saarstahl Beteiligungsgesellschaft mbH, Völklingen 100.000 6,507 -2,810 1) DWK Drahtwerk Köln GmbH, Köln 100.000 6,571 -3,299 A profit and loss transfer agreement exists. 2) Currency of the country converted into €. SIB-Immobiliengesellschaft mbH, Völklingen 100.000 67 2 3) Profit of the year was transferred to retained Neunkircher Eisenwerk Wohnungsgesellschaft mbH, Völklingen 100.000 9,265 -200 earings and not transferred under a profit and loss Gewerbe- und Wohnpark Heubügel GmbH, Völklingen 89.000 27 20 transfer agreement. FORGE Saar GmbH, Dillingen 100.000 140 13 4) Consolidated financial statement - DHS holds 10 % FORGE Saar Besitzgesellschaft mbH & Co. KG, Dillingen 100.000 160,959 124 of own shares Schweißdraht Luisenthal GmbH, Völklingen 100.000 1,643 635 5) No final result was available when the annual 45. Saarstahl Beteiligungsgesellschaft mbH, Völklingen 100.000 56 -5 financial statement was compiled. The figures are preliminary. Stahlguss Saar GmbH, St. Ingbert 100.000 -6,626 -20 6) Last annual financial statement on 31 March 2019. Saar Stahlbau GmbH, Völklingen 100.000 3,658 -1,558 7) Short financial year of 9 months from 1 April 2018 1) Saar Rail GmbH, Völklingen 100.000 9,963 0 to 31 December 2018.

25 Capital Equity Result for the share % 31 December 2019 FY 2019 thousand € thousand € b) Ausland (2)

Secosar S.A.S., Bussy-Saint-Georges 100.000 18,943 3,175 5) Secosar Etirage S.A.S., Bussy-Saint-Georges 100.000 -6,150 -226 5) Quinofer S.A.S., Bussy-Saint-Georges 100.000 1,240 26 5) Saarstahl AG, Zürich 100.000 673 -12 2)5) Les Aciers Fins de la Sarre S.A., Liège 100.000 4,359 11 5) Acciai della Saar S.r.l., Milano 100.000 536 56 Saarsteel Inc., New York 100.000 366 37 2)5) Saarstahl (S.E.A.), Petaling Jaya / Malaysia 100.000 45 2 2)5) 1) A profit and loss transfer agreement exists. 2) € Conflandey Industries S.A.S., Port-sur-Saône 100.000 5,363 285 Currency of the country converted into . 3) Profit of the year was transferred to retained Saarstahl Iberica S.A., Sant Just Desvern Barcelona 100.000 727 6 5) earings and not transferred under a profit and loss FILMETAL S.A., Bussy-Saint-Georges 99.270 1,682 -87 transfer agreement. 2) EUROFIL Polska sp. z.o.o., Warsaw 98.000 -76 -3 4) Consolidated financial statement - DHS holds 10 % S.P.M. Participation S.A.S., Bussy-Saint-Georges 100.000 -11,511 -107 5) of own shares Saarstahl Shanghai Limited, Shanghai 100.000 3,808 291 2)5) 5) No final result was available when the annual Saarstahl Export India Pvt Ltd, Mumbai 100.000 1,424 7 2)6) financial statement was compiled. The figures are preliminary. Saarstahl Demir Celik , Istanbul 100.000 177 16 2)5) 6) Last annual financial statement on 31 March 2019. Saarstahl s.r.o. Ostrava 100.000 1,086 54 2)5) 7) Short financial year of 9 months from 1 April 2018 2)5) Saarstahl UK Limited, Scunthorpe 100.000 117 -52 to 31 December 2018.

26 Capital Equity Result for the share % 31 December 2019 FY 2019 thousand € thousand €

2. Participating interests

DHS - Dillinger Hütte Saarstahl AG. Dillingen 33.750 2,451,425 -216,377 4) Dillinger Hütte und Saarstahl Vermögensverwaltungs- und 50.000 265,491 1,929 Beteiligungs-OHG. Dillingen ROGESA Roheisengesellschaft Saar mbH. Dillingen 50.000 301,636 2,243 1) Kraftwerk Wehrden GmbH. Völklingen 33.333 94 -9

1) A profit and loss transfer agreement exists. 2) Currency of the country converted into €. 3) Profit of the year was transferred to retained earings and not transferred under a profit and loss transfer agreement. 4) Consolidated financial statement - DHS holds 10 % of own shares 5) No final result was available when the annual financial statement was compiled. The figures are preliminary. 6) Last annual financial statement on 31 March 2019. 7) Short financial year of 9 months from 1 April 2018 to 31 December 2018.

27 IMPRINT

Publisher: Editor: Saarstahl AG Ute Engel, 66330 Völklingen SHS - Stahl-Holding-Saar GmbH & Co. KGaA Juliane Wernet, Phone: +49 (0) 6898/10-0 SHS - Stahl-Holding-Saar GmbH & Co. KGaA www.saarstahl.com Conception/Design: E-Mail: [email protected] Markus Renner, SHS - Stahl-Holding-Saar GmbH & Co. KGaA Angela Theobald, GBQ Saar mbH Michelle Blandfort, GBQ Saar mbH

Print: GBQ, Völklingen